BAE cranks up Washington lobbying machine to push through EADS merger

http://www.guardian.co.uk/business/2012/sep/24/bae-systems-washington-lobbying-machine-eads

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BAE Systems is cranking up its mighty Washington lobbying machine for a furious push to win support for its ambitions to merge with European aerospace rival EADS – a £29bn deal that would create a rival to America's Boeing.

Persuading Washington's political elite that the merger would not disrupt some of America's most sensitive defence projects, including the F-35 joint strike fighter programme which is developing a radar-evading jet plane, is seen by many as one of the biggest hurdles to be overcome if the proposed deal is to succeed.

But there were signs on Monday that there may also be political resistance building in Germany. The would-be merger partners are said to have suggested awarding "golden shares" in the enlarged group to their three European government stakeholders – France, Britain and Germany – in order to give protection against future takeovers. German officials are believed to remain unconvinced such arrangements could not be challenged in the European courts. They are also looking for watertight assurances about retaining EADS jobs in Germany.

Meanwhile BAE's backroom campaign in Washington is expected to be led by industry veteran Linda Hudson, who heads up BAE's North American operations, and supported by her chief lobbyist Erin Moseley, who has previously worked for rivals Lockheed Martin and General Dynamics.

The London stock market-listed company is already one of the biggest lobbying firms on Capitol Hill, spending more than $4m a year since 2005 according to the Center for Responsive Politics. Moreover, in the run up to November's US election, BAE has channelled more campaign donations to US politicians than any other non-American multinational.

It is illegal for companies to give directly to federal election candidates in America, but businesses – including US subsidiaries of multinational groups – are permitted to set up so-called political action committees. PACs, typically staffed with company lobbyists, pool donations from US staff and distribute them in the interests of the company.

BAE Systems' PAC has given $602,500 to a spread of candidates with 61% of funds going to Republican politicians. Among the largest contributors to the PAC were Hudson and Moseley.

Those receiving campaign financing from the BAE committee included 14 members of the 21-strong Congressional armed services subcommittee on readiness.

The treatment BAE receives in Washington is likely to become a hot election issue as the firm employs almost 40,000 staff in important electoral states such as Pennsylvania and New Hampshire.

The company was forced to temporarily lay off hundreds of workers at its York plant in Pennsylvania this summer because of delays to a government contract for Bradley armoured vehicles. Since then it has warned that the impact of impending defence spending cutbacks and reduced US military activity overseas could be much more severe.

The impact of likely defence spending cuts in the US and Britain is also thought to be high on the agenda for BAE's political friends in Westminster. A spokesman for David Cameron yesterday said the prime minister had discussed the potential EADS merger with his German and French counterparts.

"Given the nature of the companies' activities, the government will clearly have some involvement and we need to ensure that the UK's public interest is properly protected," the spokesman said.

"We are working with the companies to ensure that that is the case. We are also talking to people in other countries about this … Clearly, the companies have activities in all three countries and you would expect us to stay in close contact on it. We have an interest in ensuring that the UK's interests are properly protected and we will do that."

Cameron has yet to speak to Barack Obama about the proposed takeover, which is expected to see EADS shareholders control up to 60% of the enlarged group while BAE investors would have 40%.

Underlying the level of political interest in the deal, MPs on the defence select committee announced they would review the proposed merger, announcing they intened to call evidence from next month.

Despite the British government holding a "golden share" in BAE – which effectively gives it powers of veto over proposed changes of ownership judged to harm the UK national interest – the group generates 47% of sales from America, its largest market.

The US arm works shoulder-to-shoulder with other magic circle American defence contractors on some of the most sensitive defence programmes undertaken by the Pentagon, including the F-35 joint strike fighter programme which is developing a radar-evading jet plane.

In order to do so, BAE operates under a strict Special Security Arrangement designed to protect nation security projects. The agreement stipulates, for example, that senior BAE staff should all be American citizens.

On its website, BAE says of its lobbying activity: "In the defence and security industry, lobbying is often closely related to acquisitions because governments and their agencies are the direct customers for our products and services. This means that our lobbying activities include informing politicians or government officials about our products and services, or advocating solutions to programmes that are important to our customers and end users in the armed forces and other government organisations."